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Wednesday, March 20, 2013

Meeting the Renewable Fuel Standard (RFS) Mandate for Cellulosic Biofuels: Questions and Answers

Kelsi Bracmort Specialist in Agricultural Conservation and Natural Resources Policy

The Renewable Fuel Standard (RFS) was expanded under the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140) in an effort to reduce dependence on foreign oil, promote biofuel use, and stabilize transportation fuel prices, among other goals. Over 15 years, the RFS requires that increasing amounts of biofuels—36 billion gallons by 2022—be used in transportation fuel. The mandate is to be accomplished in part with advanced biofuels, including cellulosic biofuels—fuels produced from cellulosic materials including grasses, trees, and agricultural and municipal wastes—which would increase over time to comprise some 44% of the RFS in 2022.

The U.S. Environmental Protection Agency (EPA) is required to set the annual standard for cellulosic biofuels under the RFS for the following year by November 30. If projected cellulosic biofuel production is less than the volume specified in the statute, EPA can lower the cellulosic biofuels standard. EPA concluded that the nation lacked sufficient production capacity to meet the RFS cellulosic biofuels mandate for 2010, 2011, 2012, and 2013. EPA reduced the mandate (actual volume) for 2010 (from 100 million gallons to 5 million gallons), 2011 (from 250 million gallons to 6.6 million gallons), and 2012 (from 500 million gallons to 8.65 million gallons, later vacated by a federal court decision). EPA proposes to lower the 2013 mandate from 1.0 billion gallons to 11 million gallons.

The 2010, 2011, and 2012 reduced mandates were not met by actual cellulosic biofuel production, which EPA reports was limited. Instead, these mandates were met with renewable identification numbers (RINs) generated under the original RFS, and with cellulosic biofuel waiver credits. The cellulosic biofuels industry may be able to produce the EPA mandates if certain obstacles are overcome: lowering the cost of conversion technology at the initial stages of commercial application, easing access to financing, removing feedstock supply uncertainties, and creating certainty for tax incentives. EPA reports that the industry front-runners—eight production facilities—have addressed many of these concerns, and that their success “will significantly decrease the perceived risk associated with similar future facilities and could potentially lead to the rapid deployment of cellulosic biofuel production facilities around the United States.” Another challenge for the cellulosic biofuels industry—and all biofuels industries—is the petroleum industry’s opposition to the RFS, in part because it views the RFS as unworkable. Other industries—livestock and poultry in particular—have joined the petroleum industry in requesting that the RFS be modified. Another constraint is the need to comply with the blend wall—the upper limit to the total amount of ethanol that by law can be blended into U.S. gasoline.

Several federal programs assist the cellulosic biofuels industry, including the U.S. Department of Agriculture’s (USDA’s) Biorefinery Assistance Program and Biomass Crop Assistance Program, and the U.S. Department of Energy’s (DOE’s) Loan Guarantee Program. EPA reports that some of the cellulosic biofuels front-runners received or were offered significant federal financial support (approximately $637 million) in the form of grants and loan guarantees from USDA and DOE between 2009 and 2012.

Many questions regarding cellulosic biofuels and the RFS may arise as Congress debates energy legislation. Can the RFS mandate for cellulosic biofuels be met? If so, when would it be met? What impact will the continued lowering of the cellulosic biofuels mandate by EPA have on investment in production? Should Congress continue to provide support for cellulosic biofuels, and if so, how? Might Congress statutorily increase the number of qualified feedstocks for the RFS cellulosic biofuels category, given the 112
th Congress amendment of the definition of cellulosic biofuels to include algae for some tax incentives? What impact will other legislative discussions (e.g., military support for biofuels) have on the RFS cellulosic biofuels mandate?

This report, in a question and answer format, discusses some challenges facing the cellulosic biofuels community, including feedstock supply estimates, and potential legislative options to address cellulosic biofuels production uncertainty for the RFS.

Date of Report: March 11, 2013
Number of Pages: 21
Order Number: R41106
Price: $29.95

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